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Taxpayers who paid qualified college tuition and fee expenses in 2014 may be able to claim the American Opportunity Tax Credit (AOTC) worth up to $2,500 per eligible child. Despite repeated calls for simplifying education tax incentives, frequent legislation submitted in Congress and ongoing confusion between taxpayers and the IRS about how and when to claim the various education tax credits, no one has succeeded in simplifying the mess, yet. The good news? The credit is available through 2017. That means $10,000 of tax savings per child in the next four years. Following are the rules to claim the credit properly, with links to the forms and instructions.

Which College Credit Should You Claim?

There are two college-related tax credits, the American Opportunity Tax Credit and the Lifetime Learning Credit, as well as one deduction, the tuition and fees deduction. You may only claim one credit or the deduction in any given year. The American Opportunity Tax Credit (AOTC) is the logical choice because it is by far the richest at up to $2,500 per eligible child, versus $2,000 and $1,800 for the Lifetime Credit. Think of the AOTC as a better version of the old Hope Credit. The AOTC came about as a result of the infamous “stimulus package” legislation during the financial crises of 2008 to 2009, and essentially took the Hope Credit and made it worth more, and made it available to more families by raising the phase-out levels of income. The American Opportunity Tax Credit was set to expire at the end of 2012, but was extended for five years to 2017 as part of the so-called "fiscal cliff" deal that also extended many of the Bush-era tax credits.

American Opportunity Tax Credit Is Worth The Most

The AOTC is worth up to $2,500 per student for four academic years (remember though that it expires in 2017). The income phase-out is $160,000 - $180,000 of modified adjusted gross income on joint tax returns ($80,000 - $90,000 for single tax filers and head of household). The amount of the credit is calculated as 100% of the first $2,000 in qualified tuition and fees costs paid, plus 25% of the next $2,000 paid for such fees. For lower income taxpayers the credit is refundable up to $1,000, but not for dependent children. College students who are "independent" for tax purposes, meaning that they claim themselves as a dependent on their own tax return (they must provide greater than half of their own support to do so), and provide greater than half of that support from earned income only, are eligible to claim the refundable portion of the AOTC, up to $1,000. For more on the personal exemption and the support test, review IRS Publication 501.

Which College Expenses Count?

You use IRS form 8863 (get the form and instructions here) to claim the American Opportunity Tax Credit, which is based on qualified expenses that you must pay for yourself, your spouse or a dependent for whom you claim an exemption on your tax return.

According to IRS Publication 970 qualified education expenses are tuition and related expenses required for enrollment or attendance at an eligible educational institution.